The well-built national highway from Bangalore to Coorg in the Western Ghats makes for a smooth drive in scenic surroundings.

Yet, for anyone with a basic sense of urban planning and interest in India’s economic future, it can be a rather worrying journey. The road represents compelling evidence of policymakers’ failure to comprehend the phenomenon of urbanization sweeping India.

Numerous coffee shops and other tiny commercial establishments, schools and colleges are sited on both sides of the highway, between small homes and stretches of agricultural fields, attesting to the varied land-use pattern in the area. At places, motorists need to slow down or stop so that students can cross the road.

Clearly, the local population is taking advantage of the new artery to build new livelihoods, and generate additional sources of income, facilitated by the highway traffic and the mobility of the road.

Although the presence of these establishments may appear to be a positive marker for economic development, what they really suggest is that land—arguably the country’s most contentious and precious natural resource—is not being used as efficiently as it should be.

Sathish Selvakumar, the head of the programme for working professionals at the Indian Institute for Human Settlements, a Bangalore-based insitution focused on urban transformation, explains the problem with this pattern of development. 

“What we are seeing is that this sort of ribbon development is happening outside the city limits along major access roads,” Selvakumar says. “The impact is that land within urban limits is not utilized, these new developments do not get the services that the city is mandated to provide, and access roads cease to be connectors and become major thoroughfares.”

Urbanization is defined as the shift of human population from farm to non-farm economic activity. It is as compelling a benchmark of economic progress as industrialization: potentially both a policy tool to stimulate growth and an opportunity to enhance national prosperity, but is not always publicly embraced as such, as the Bangalore-Coorg road illustrates. 

Juxtapose the image of a highway surrounded by a patchwork of fields and small commercial establishments against another, altogether different image, and the crucial missing links between India’s economic development, its under-educated young workforce, and its spatial, urban growth becomes a little clearer.

A national phenomenon 

Laveesh Bhandari, a Delhi-based economist who heads economic research firm Indicus Analytics, brandishes a copy of Market Informer, an innocuous supplement full of advertisements for local personal services such as hobby classes, pest control and beauty salons. 

The October edition says that 12,000 complimentary copies of Market Informer were distributed in neighbourhoods such as Greater Kailash II and Masjid Moth. Almost every advertisement carries a mobile phone number, but not all include a physical address or a landline number, suggesting that these are small commercial establishments, commonly referred to as mom-and-pop micro enterprises, manned by relatively unskilled but entrepreneurial young people. 

For Bhandari, the supplement reflects a national phenomenon: the growing prevalence of low-skilled jobs amongst under-educated youth, in all of urban India, whether a large metropolis or a small town.

“Uneducated youth, in the low-income groups, will take whatever comes that way, in terms of livelihoods, and the addition to the productivity is only minor,” he says. “A very large number of jobs in India, maybe 50-70% of new jobs, are like that, what I call forced entrepreneurship, or low-additional productivity jobs. It’s better than unemployment. Services create far more jobs than any other sector.”

“In India, instead of going to a car wash, we have a guy to wash the car. So you’ve substituted a manufacturing sector job for a service sector job,” he adds.

The ubiquitous beauty parlour therapist or the appliance service technician in India make up a workforce equivalent to the millions of low-skilled, low-wage manufacturing jobs created in China over the last two decades.

While the dominance of the informal sector is not a surprise, its challenges for urban planners are much more complicated. The Bangalore-Coorg highway illustrates the problems of ineffective land-use outside city limits as local rural citizens seize any available opportunity to augment their agricultural income. 

Bhandari’s Market Informer captures the challenges within city limits. “These uneducated, low-skilled, service-sector youth are doing something totally different. They’re coming from the periphery, going to the periphery and they need different urban planning solutions, especially in terms of housing, public spaces and public transport,” he says.

Shirish Sankhe, a director at McKinsey and Co., agrees that cities represent agglomerations of both productive and low-income jobs. “There is no debate that most of the high-end job creation comes from urban areas, but highly productive jobs are only 15%, which is what you need to start increasing, so the productivity of the whole country goes up,” he says. Sankhe is co-author of a report titled India’s Urban Awakening published in April 2010.

Challenges for urban planners 

Although most of India’s new job creation might be taking place in the form of low-skilled, service-sector jobs in and around urban agglomerations, unfortunately, current urban development planning mechanisms are simply inadequate in integrating—to any extent possible—the informal economy into the formal urban planning process. 

“There is no record of informal workers in the city performing tangible jobs. For example, if you don’t acknowledge that ragpicker units provide an essential activity for the city, then how can you provide services for them?”questions Pankaj Mishra, executive director of the Urban Design Research Institute.

Smita Srinivas of the Indian Institute of Human Settlements underlines this policy myopia.

“Policymakers absolutely refuse to acknowledge that there are different levels of enterprise in our economy, and that the reality is heterogeneous. The informal economy is not seen as fundamentally interlinked to the Indian economy,” she says. “Enclave economies”continue to thrive, such as the Bandra Kurla Complex business district in Mumbai or the many high-rise, residential gated communities, with boundary walls, lacking provision for ground-floor, street-level retail. Such retail facilitates the creation of local micro-enterprise and serves the local community. 

A government official with one of Maharashtra’s largest municipal corporations agrees. “We have a lot of informal growth. When we sanction one tenement, statistically 2.5 new tenements are generated, which is not considered by us in our planning process. 1.5 tenements out of 2.5 tenements are slums,” he says on condition of anonymity.

“The legal instruments that we have to tackle the slums are addressed to existing slums, not upcoming slums,” the official says. “The informal process of formation of 2.5 tenements continues unabated, because it is related to socio-economic problems. Our entire energy goes towards this existing 2.5 tenements, not towards proliferation. No government has ever introduced any policy of arresting the growth of slums.” 

Creative solutions 

While the current scenario might appear bleak, the reality is that a straightforward, proven solution already exists: incorporate the informal economy into planning by allowing the formation of micro enterprises, which can be integrated in the new ecosystem. 

In other words, construct urban development policy—and consequent spatial planning policy—in such a way that farmers or agricultural workers can themselves make the transition to urban citizens and contribute to the new urban development. 

Two case studies in Maharashtra illustrate the possibilities. First, the Magarpatta development in Pune, where 435 acres of farmland have been successfully converted into an integrated, mixed-use township, comprising 7,500 residential apartments, an information technology (IT) park, a hospital, a school and retail outlets, spanning 288 buildings. 

Satish Magar, chairman and managing director of the Magarpatta Township Development and Construction Co., while converting Magarpatta from rural-to-urban land, ensured that at least one person in each of the 120 farmer families found a new way to earn a living as a local entrepreneur connected in some way to the new township. 

He was adamant that “no landowner is allowed to hold a position in the company. They can be suppliers, entrepreneurs, contractors, but they cannot work in the company, except for one person who is employed as an accountant.” 

The strategy has worked. Take the case of Shankar Kishen Magar, a 64 year-old retired farmer, who now lives in a 3,000 sq. ft bungalow, with his wife, two grown-up sons, their wives and young children. Both sons run independent businesses, in earth-moving equipment and hospitality. 

The family earlier earned Rs.15,000 per month from farming. Their monthly income, from both the company’s dividends and their sons’ incomes, now comprises a few lakhs of rupees.

A similar principle is being executed, in a different manner, by the Maharashtra Industrial Development Corporation (MIDC). The state government agency acquires land to construct industrial estates by compensating farmers, develops it with the required infrastructure such as roads, and gives 15% of the developed land back to the original landowners at highly subsidized rates, in proportion to their original holding.

Creating an ecosystem 

These landowners then use the plots to develop what are known as project-affected people (PAP) micro-enterprises, such as canteens for industrial workers in the estate, transportation businesses, or basic fabrication or manufacturing units.

Bhushan Gagrani, chief executive officer of MIDC, explains that the policy is facilitating faster land acquisition, and 

is more effective than outright compensation as “original land-owners want some stake in the development of the area. Their prosperity is assured as new sources of livelihood are generated. Also, people are not left completely rootless or landless, and continue to have some attachment to the area.”

The 15% figure has been calculated in such a way that there is enough land for original landowners to start a viable enterprise, without compromising on the ownership rights of newcomers. 

For example, Manoj Mhatre, a trained civil engineer, pooled his family’s share to set up a 990 sq. m unit in Navi Mumbai which provides heat treatment solutions for steel rods and steel wire rods—a clear example of a policy beneficiary being able to contribute to making the industrial estate more vibrant. “The last time someone farmed on this land was in the late 90s. We are now looking to expand our operations,” he says.

In fact, as Mhatre says, the tiny micro enterprises provide valuable inputs to the new ecosystem. “Small and medium enterprises cannot afford canteens, which are provided by the PAP micro-enterprises. Also, all transportation needs of the industrial estate units are met by them,” he says. 

An even more effective urbanization policy would provide an explicit link between housing and new livelihoods, and facilitate the creation of inclusionary housing for low-income workers. 

For example, Singapore’s success as a city owes a lot to its world-famous housing board, which provides organized, subsidized, low-income housing for the city’s army of service-sector workers, preventing the creation of slum-like ghettos. 

Shirish Patel, veteran urban planner and chairman emeritus of Shirish Patel Associates, an engineering consultancy, provides a historical and sociological explanation.

“Since independence, there has been no connect between creating jobs and providing residences,” he says. “It’s frankly our caste system, we don’t feel responsible for how other people live, we think it is none of our business. An RTI inquiry in 2005 revealed that in Mumbai there were 4,413 police constables and 81 police inspectors living in slums. The numbers have hardly changed since. The state government is perfectly happy to create a job of a policeman, but won’t give him a place to pitch his tent.”

Land and human capital are two of India’s greatest natural resources, and the most vital potential assets in driving India’s economic growth. An effective urbanization policy allows the marriage of tangible, physical space with intangible, human and intellectual energy. 

For the policy to work, it must serve as a troika, by being human-centred, market-friendly, and inclusive. In other words, it must incorporate the interests of all stakeholders, while aligning itself with private-sector market forces and offering innovative, urban design solutions. 

Selvakumar of the Indian Instutue for Human Settlements sums up the argument: “If our 400 cities and towns fail their citizens now, our economy has little chance of succeeding, because these 400 urban agglomerations will really deliver the multiplier effect for the economy as a whole.”